Madison Square Garden Sports Corp. Form 10-Q Summary
Business context and reporting period
This filing covers the quarter and nine months ended March 31, 2024, corresponding to fiscal third quarter 2024; the request metadata labels the period “2023 Q3.” MSG Sports owns and operates the New York Knicks, New York Rangers, Hartford Wolf Pack, Westchester Knicks and a team performance center. The Company operates as one reportable segment. Results are seasonal, with a disproportionate share of revenue generated in the second and third fiscal quarters when most games are played.
Key financial metrics
| Metric | Three months ended March 31, 2024 | Year-over-year change | Nine months ended March 31, 2024 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $430.0 million | 12% | $799.9 million | 5% |
| Operating income | $79.7 million | (2%) | $93.7 million | (4%) |
| Operating margin | 18.5% | Down from 21.4% | 11.7% | Down from 12.8% |
| Net income attributable to MSGS stockholders | $37.9 million | (28%) | $33.3 million | (42%) |
| Diluted EPS | $1.57 | Down from $2.18 | $1.38 | Down from $2.27 |
| Adjusted operating income | $88.7 million | 3% | $115.7 million | (6%) |
Revenue growth was led by higher ticket-related revenue, suite revenue, food and beverage and merchandise sales, local media rights fees, and league distributions. Event-related revenue increased to $177.8 million in the quarter, media rights revenue to $139.6 million, and sponsorship, signage and suite license revenue to $101.4 million.
Direct operating expenses increased 14% in the quarter and 9% year to date, primarily due to higher team personnel compensation, league revenue sharing expense, NBA luxury tax-related provisions, other team operating costs, merchandise costs and team personnel transaction provisions. Selling, general and administrative expense increased 25% in the quarter, partly because of executive management transition costs, and increased 2% year to date.
Net interest expense was $6.4 million in the quarter and $19.7 million year to date, up 34% year to date. Miscellaneous expense was $1.4 million in the quarter and $11.1 million year to date, compared with miscellaneous income in the prior-year periods, primarily reflecting unrealized losses on Xtract One investments and warrants.
Net cash used in operating activities was $16.2 million for the nine months ended March 31, 2024, compared with $114.8 million of cash provided in the prior-year period. The decline primarily reflected working-capital changes, including lower deferred revenue, higher contract assets and timing of collections and payments. Investing cash outflow was $5.7 million. Financing activities provided $26.2 million, including net borrowing activity.
Balance sheet, debt and liquidity
- Cash and cash equivalents were $40.0 million; cash, cash equivalents and restricted cash totaled $44.8 million.
- Total debt was $360.0 million, consisting of $275.0 million outstanding under the Knicks revolving facility, $55.0 million under the Rangers revolving facility and a $30.0 million NHL advance.
- The Knicks and Rangers revolving facilities mature December 14, 2026. Borrowings carried interest rates of 6.68% and 7.18%, respectively, at March 31, 2024.
- Management reported approximately $195.0 million of additional borrowing capacity and believes liquidity is sufficient to fund operations and obligations for the foreseeable future.
- The Company repaid an additional $40.0 million under the Rangers facility on April 22, 2024, after quarter-end.
- A hypothetical 100-basis-point increase in floating interest rates would increase annual interest expense by approximately $3.3 million based on March 31, 2024 borrowings.
- Operating lease liabilities totaled $807.2 million, with total undiscounted lease payments of $2.27 billion, primarily related to The Garden and office facilities.
Material changes versus the prior comparable period
- Quarterly revenue increased 12%, but operating income declined 2% as expense growth exceeded revenue growth.
- Year-to-date revenue increased 5%, while operating income declined 4% and stockholder net income declined 42%.
- Quarterly and year-to-date results were affected by the shift from substantial investment gains in the prior year to investment losses in the current year.
- Interest expense increased year to date because of higher average interest rates and greater average Knicks facility borrowings.
- The Company sold its controlling interest in Counter Logic Gaming in April 2023 and now holds an approximately 25% interest in NRG; the absence of CLG revenue and expenses affected year-over-year comparisons.
- Home-game volume differed by period: the Knicks played 26 home games in the current quarter versus 21 previously, while the Knicks and Rangers played fewer combined home games during the nine-month period.
- The Company did not repurchase shares during the nine months ended March 31, 2024 and had approximately $184.6 million remaining under its repurchase authorization.
Outlook, risks, contingencies and unusual items
The filing does not provide specific quantitative revenue or earnings guidance. Management emphasizes that future results depend on team popularity and competitiveness, attendance, ticket and sponsorship demand, player compensation, injuries, trades, league revenue sharing, luxury taxes, media rights, economic conditions, interest rates and the seasonal timing of games.
Principal risks include NBA and NHL rule or collective bargaining changes, potential work stoppages, affiliate performance—particularly MSG Networks—security incidents, litigation, public health events, risks affecting large public gatherings, credit facility defaults, regulatory and tax changes, and the performance of strategic investments.
The Company recorded a $2.2 million net provision for team personnel transactions in both the quarter and nine-month period, primarily for season-ending player injuries. Annual impairment testing identified no impairment of goodwill or indefinite-lived intangible assets. Various lawsuits remain pending, but management does not believe their resolution will have a material adverse effect. The New York City tax audit for fiscal years 2016 and 2017 was finalized in January 2024 with no material changes.
Investor verification points
- Verify the sustainability of revenue growth and whether higher team and league-related costs continue to pressure operating margins.
- Assess liquidity and refinancing sensitivity given $360.0 million of debt, floating interest rates and negative year-to-date operating cash flow.
- Review the timing and collectability of receivables, contract assets and deferred revenue, which materially affected operating cash flow.
- Monitor the Knicks’ and Rangers’ performance, attendance, home-game schedule, player transactions, revenue sharing and potential luxury tax exposure.
- Separate recurring operating performance from volatile investment gains and losses, particularly those associated with Xtract One securities and warrants.
- Review related-party transactions with MSG Entertainment, Sphere Entertainment and MSG Networks, including media rights, arena license and service agreements.
- Confirm the effect of the April 22, 2024 $40.0 million Rangers debt repayment and the Company’s remaining borrowing capacity after that payment.